Tuesday, March 10, 2015

NEW INC BLOG POST BY 1871 CEO HOWARD TULLMAN

If you haven't been in a Best Buy store lately, you'll be surprised to find that--almost on a weekly basis--the Blu-ray/DVD department just seems to be shrinking right before your eyes. It seems to be a flat-out race to the bottom (and to the mid-aisle disk dumping bins) between the movies and the CDs, whose in-store footprint is also approaching Lilliputian dimensions at Best Buy and other electronics retailers. (Although the decline in the audio department seems to be slightly offset by the huge growth of headphones. Thank God for Beats.)

I think that Best Buy's management is basically giving up and conceding that they're fighting a losing battle on too many fronts to continue the war. But they may be missing the boat because they're playing 100 percent defense (cost-cutting) instead of trying to get ahead of the curve and repositioning themselves to serve the new needs of their customers before their remaining customers abandon them entirely. This isn't anything new in the category of Business Management 101; the demands of customers are always changing, and you either change with (or ideally ahead of) them or your customers go somewhere else. What has changed is the speed of the changes going on and how quickly you need to anticipate and react to those changes in behaviors, attitudes, and demands.

The Tale of the Long Tail

Companies that have effective online and offline channels consistently and significantly outperform their competitors who are still using only a single channel (typically bricks and mortar). It's all about the interplay between the channels, the mix of offerings, and, most importantly, the need to continually innovate and add new functionality, products, services, and solutions to both channels rather than starving one and trying to double down on the other. Honestly, I think that the big box retailers bought into the inevitability arguments which were constantly being promoted by Amazon's press and PR blitzkrieg a little too soon and much too completely. As a result, now that the boat has pretty much sailed, I think we'll see that 2015 will be known hereafter as the year in consumer retail when the "tale of the long tail" really came true. But only because the major retailers helped stage their own funerals instead of fighting back.

And, as convincing as the long tail arguments seemed to be on the surface, the infinite inventory and instant availability of the long tail were only part of the causes of the retailers' ongoing difficulties. The hidden problem is that these freaked-out retailers are killing themselves slowly. Each concession that they make to reduce their in-store inventory exposure turns out to make the overall situation even worse. No one wants to waste a trip to the store when there's a good chance that what they want won't be there anyway. This is the old Blockbuster paradox coming back to life: Blockbuster always had plenty of old films--but none of that week's hottest hits--in stock. In other words, they had everything you didn't want and nothing you needed.

Thriving in the Instant Gratification Economy

Although we're not watching any fewer movies or TV shows or listening to less music, we are increasingly consuming that content in virtually every manner except sitting in one place and "playing" a physical object on a fixed and immobile device. So the underlying issue isn't decreased demand. It has a lot more to do with portability. The rise of mobile computing and the ubiquity of constant connectivity has put extra pressure on the old delivery systems and technologies, and the big box retailers haven't done any more to address this transition than the booksellers have. In a world where everything wants to be streamed, Best Buy needs to think of its stores as digital gas stations and provide fast, cheap, and exclusive fill-ups on new music for their customers on the spot--in the store and online too. The music is the real message, not the medium of delivery. We don't need shiny disks to share our sounds any more. Best Buy should also stick to selling things like fans and fridges, which won't be going digital any time soon. Phones and headphones will probably sustain the company for a while, because these objects (of both necessity and desire) remain highly personal and tactile tokens in our lives. If you don't believe me, ask yourself how reluctant you are to hand your phone to someone else.

Right now, we're in the age of IG (instant gratification) and the immutable law of IWWIWWIWI (I want what I want when I want it). Every industry, even relatively new and fairly digital ones, will be changed significantly as we continue to move from the analog world to a world of digital everything. And new major businesses will be built in the cracks and the gaps created every time the big guys fall asleep at the switch. Take gift cards, for example. Consider the very rapid rise of Raise, which runs an online, mobile-enabled exchange that sells partially used gift cards to consumers at a discount. And Raise doesn't just sell you the cards while you're sitting on the couch at home; it will sell you a Target gift card at a discount to the face amount of the card while you are standing in line getting ready to pay for your purchases at Target. Exactly what you need, when you need it, instantly.

As an entrepreneur, your job is to anticipate how these kinds of game-changing shifts will impact your business--because your business may be next in line. There are no simple answers, but there are a few things to watch for. The alternative is waiting until it's too late, and then spending a lot of costly and painful time playing catch-up.

1. Actively manage your channels of distribution.

You need to constantly monitor and dynamically adjust your investments in each of the channels you are using to reach your customers in as close to real time as possible. And the more channels you effectively employ, the higher your likelihood of ultimate success, especially since the vast majority of digital distribution channels are relatively inexpensive to use.

2. Track the move from analog to digital.

You need to monitor the ongoing migration of the traditional products and services in your industry as they move from the analog and physical world into the new digital economy. Some of these products will survive the transition, some will morph into new offerings, and some will cease to exist, but managing the life cycles of all of them will be crucial to your success.

3. Look for new methods of distribution.

You need to watch for the emergence of new delivery channels and systems for both your own products and services and, more importantly, for the sale and delivery of competitive or substitute goods which may be better priced, more readily accessible, easier to use, or more easily incorporated into the ways in which your customers are now conducting their own businesses.

4. Pay close attention to your customers.

You need to watch for new consumer behaviors. These are probably the most difficult to anticipate, but they are also the most rapidly disruptive, because of the speed and ease with which massive numbers of consumers can migrate to new solutions with virtually no switching costs or training requirements.

The bottom line never really changes: the customer has a constantly increasing array of choices, a limited attention span, and a relatively fixed amount to spend on whatever you're selling. The winners in the competition for those dollars will be the players who are most attentive to the customer's changing desires and most immediately responsive to their demands.

In the end, notwithstanding the appeal and power of the long tail, it's not a game of vast volume, it's ultimately about the connection you build to your customers and the concrete value you deliver to them.